7 July 1997 Internal T.I. 9716927 - CHILD TAX CREDIT - NON-RESIDENT SPOUSE INCOME

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

For purposes of subsection 63(2), whether income of a supporting person means world-wide income or only income or gains referred to in paragraphs 115(1)(a) and (b) of the Act

Position:

World-wide income

Reasons:

According to Finance's intention, the determination of income of a non-resident is no different from that of a resident, as expressed in the Technical Notes regarding section 180.2. Also, wording used in sections 115 and 118.94 seems to support this interpretation.

            July 7, 1997

M. Quebec   International Section
      Director    S. Leung
      International Tax Services Office   957-2115

      Attention: Jennifer Gilmour
           Enquiries and Adjustments Division
            971692

Spousal Amount - Child Care Expense - Non-Resident Spouse

We are writing in response to your memorandum of June 23, 1997 in which you requested our opinion as to whether, for the purposes of the child care expense deduction under section 63 of the Act, income of the non-resident spouse of a taxpayer means world-wide income or only income or gains referred to in paragraphs 115(1)(a) and (b) of the Act.

You referred to an actual situation where the taxpayer is a non-resident commuter living in the United States (the "U.S.") and working in Canada. The taxpayer's spouse is also a non-resident person of Canada throughout the years 1993 and 1994 with no Canadian source income with respect to those years. The taxpayer incurred child care expenses in those years in question but the taxpayer's claim for these expenses were disallowed for the reason that the taxpayer was not the lower income spouse because the taxpayer's spouse has no income for Canadian tax purposes. The taxpayer then requested adjustments to allow the claim for personal credits under subparagraph 118(1)(a)(ii) of the Income Tax Act (the "Act")¹ with respect to supporting² a spouse who has no income for Canadian tax purposes. You are aware that world income of the taxpayer's spouse is required to be taken into account in determining personal credits under paragraph 118(1)(a) of the Act for a married taxpayer who is a non-resident person and who meets the "all and substantially all" test referred to in section 118.94 of the Act. XXXXXXXXXX

Our Comments

It is our opinion that income of a supporting person referred to in subsection 63(2) of the Act means income as determined under section 3 of the Act notwithstanding that the supporting person is a non-resident person of Canada. In other words, it means world income, not only income sourced in Canada as referred to in subsection 115 (1) (a) and (b) of the Act. The support for this interpretation can be found in the Technical Notes issued by the Department of Finance in 1995 with respect to section 180.2 of the Act which state, among other things:

"It should be noted that, under the scheme of the Act, the provisions of Division B of Part I (Computation of Income) apply to require both residents and non-residents to calculate their incomes in the same manner. Non-residents may be entitled to certain deductions under Division D in arriving at taxable income. The effect of this structure is that, for the purposes of the definition of "adjusted income" in Part I.2, the calculation of income will be the same regardless of the residency status of the individual."

It should also be noted that section 115 of the Act sets out the procedures to determine taxable income earned in Canada for a taxation year of a non-resident person of Canada. It starts out with the amount of the non-resident person's income for the year that would be determined under section 3 of the Act.³ This implies that the non-resident person must first calculate his or her income under section 3 of the Act (i.e., including his or her world-wide income). For the purposes of computing taxable income earned in Canada such income is adjusted as if

(a)the non-resident person has no income other than those income referred to in subparagraphs 115(1)(a)(i) to (vi) of the Act

(b)the only taxable capital gains and allowable capital losses referred to paragraph 3(b) of the Act were the taxable capital gains and allowable capital losses referred to in subsection 115(1)(b) of the Act; and

(c)the only losses referred to in paragraph 3(d) of the Act were losses from certain sources.

Then deductions described in paragraphs 115(1)(d) to (f) are allowed in computing taxable income earned in Canada. It is, therefore, our view that Division B of Part I of the Act applies to a non-resident person in computing income for the purpose of section 63 of the Act and income means world-wide income for this purpose.

This view is further supported by the wording used in section 118.94 of the Act. That section states that, with respect to a non-resident individual, certain non-refundable tax credits are not allowed "unless all or substantially all of the individual's income for the year is included in computing the individual's taxable income earned in Canada for the year". The words between the quotation marks only make sense if income means world-wide income. They would be meaningless if income only means Canadian source income because all Canadian source income would have been included in computing taxable income earned in Canada of a non-resident individual.

Conclusion

In summary, it is our opinion that the word "income" of a supporting person as used in section 63(2) of the Act means world-wide income, not only Canadian source income which is required to be included in computing taxable income earned in Canada under subsection 115(1) of the Act.

for Director
Reorganizations and International Division
Income Tax Rulings
and Interpretations Directorate
Policy and Legislation Branch

ENDNOTES

¹ The taxpayer met the "all or substantially all" test referred to in section 118.94 of the Act for the years in question.

² Whether the taxpayer can be said to have supported his or her spouse while the spouse has non-Canadian source income is an issue which will not be dealt with here. Please refer to IT-513 "Personal Tax Credits" for the Department's view on what constitutes support.

³ That is, under Division B of Part I of the Act.